Meter Reader A Weekly Analysis of Energy Stocks Using the McDep Ratio September 17, 2001 WAR

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1 WAR Summary In sympathy to the pain and suffering we all feel for the loss of life in the Attack on America we make no reference to stocks as recommendations in our commentary this week. Yet we do carry on with our analysis of recent developments and implications for the future. s for oil and gas stocks might advance more than 5% when trading resumes to be consistent with the increase in financial measures and commodity prices. The present value of natural gas and oil production advanced 5% in the few days after the act of war. Lower interest rates contributed 3% offset by lower inflation expectations that subtracted 1%. Increases in natural gas and oil prices contributed the remaining 3%. Regardless of how trading proceeds for the next week, we believe that energy investments should be prominent in the diversified investment portfolio that promises growth along with protection from inflation and deflation. Present Value Links Interest, Inflation and Commodity to Stock Tables, a companion weekly analysis, details calculations of present value for five small cap U.S. stocks - three royalty trusts, one master limited partnership and one company. The first four are concentrated on natural gas and the fifth produces more oil than gas. The calculations produced a sharper than normal change last week (see Chart on next page). The calculations depend primarily on measures of the market rather than on our own forecasts or expectations. Our feeling is that the numbers could be higher over the next few years. At the same time we watch for opportunities to emphasize investments where relative value as measured by the McDep Ratio is also attractive. Dominion Resources Bids for Louis Dreyfus Natural Gas Unbeknownst to us as we finished our comments last Sunday, Dominion Resources (D) was putting the last minute touches on its announcement to be made Monday morning. The Virginia power company with natural gas operations bid shares of Dominion and $19.20 cash for each share of Louis Dreyfus Natural Gas (LD). After a day of trading, D closed at $60.26 implying a value of $38.64 for each share of LD. The target closed at $38.68, a $0.04 premium to the offer. D appears to be getting LD at an attractive price in view of our net present value of $45.90 (see Table S-1). At the same time, D stock that the sellers would take in exchange appears to be attractively valued among power companies (see Table L-1). Kurt H. Wulff, CFA his spouse act contrary to a buy or sell rating. Mr. Wulff is not paid by covered companies. 1

2 Net Present Value of Small Cap Producers /14/00 2/14/00 3/14/00 4/14/00 5/14/00 6/14/00 7/14/00 8/14/00 9/14/00 10/14/00 11/14/00 12/14/00 1/14/01 2/14/01 3/14/01 4/14/01 5/14/01 6/14/01 7/14/01 8/14/01 9/14/01 Dollars per Share or Unit Cross Timbers Royalty Trust Hugoton Royalty Trust Energy Partners Ltd. San Juan Basin Royalty Trust Dorchester Hugoton Ltd. his spouse act contrary to a buy or sell rating. Mr. Wulff is not paid by covered companies. 2

3 Table L-1 Mega Cap and Large Cap Energy Companies Rank by McDep Ratio: Market Cap and Debt to Present Value Net ($/sh) Market Present Debt/ Symbol/ 10-Sep Shares Cap Value Present McDep Rating 2001 (mm) ($mm) ($/sh) Value Ratio Mega Cap Exxon Mobil Corporation XOM , , TOTAL Fina Elf S.A. TOT , , Royal Dutch/Shell RD , , BP PLC BP , , Chevron (incl. Texaco) CHV ,063 97, Total or Median 862, Enron Corp. ENE , Dynegy Inc. DYN , Calpine Corporation CPN , Duke Energy Corporation DUK , Williams Companies WMB , Mirant Corporation MIR , AES Corporation AES , El Paso Corporation EPG , American Electric Co. Inc. AEP , Southern Company SO , Dominion Resources D , Exelon Corporation EXC , Total or Median 213, Occidental Petroleum OXY , Anadarko Petroleum Corp. APC , Phillips (incl. Tosco) P , Burlington Resources, Inc BR , Conoco Inc. COC.B , ENI S.p.A. E , Total or Median 126, Service Baker Hughes Inc. BHI , Schlumberger Ltd. SLB , Halliburton Company HAL , Buy/Sell rating after symbol: 1 - Strong Buy, 2 - Buy, 4 - Sell McDep Ratio = Market cap and Debt to present value of oil and gas and other businesses his spouse act contrary to a buy or sell rating. Mr. Wulff is not paid by covered companies. 3

4 Table L-2 Mega Cap and Large Cap Energy Companies Rank by EV/Ebitda: Enterprise Value to Earnings Before Interest, Tax, Deprec. Dividend or ($/sh) EV/ EV/ Distribution PV/ 10-Sep Sales Ebitda P/E NTM Ebitda Symbol E NTM NTM (%) NTM Mega Cap Exxon Mobil Corporation XOM TOTAL Fina Elf S.A. TOT Royal Dutch/Shell RD BP PLC BP Chevron (incl. Texaco) CHV Median Enron Corp. ENE Dynegy Inc. DYN Calpine Corporation CPN Duke Energy Corporation DUK Williams Companies WMB Mirant Corporation MIR AES Corporation AES El Paso Corporation EPG American Electric Co. Inc. AEP Southern Company SO Dominion Resources D Exelon Corporation EXC Median Burlington Resources, Inc BR Occidental Petroleum OXY Phillips (incl. Tosco) P Conoco Inc. COC.B Anadarko Petroleum Corp. APC ENI S.p.A. E Median Service Baker Hughes Inc. BHI Schlumberger Ltd. SLB Halliburton Company HAL EV = Enterprise Value = Market Cap and Debt; Ebitda = Earnings before interest, tax, depreciation and amortization; NTM = Next Twelve Months Ended March 31, 2002; P/E = Stock to Earnings; PV = Present Value of oil and gas and other businesses his spouse act contrary to a buy or sell rating. Mr. Wulff is not paid by covered companies. 4

5 Table S-1 Mid Cap and Small Cap Energy Companies Rank by McDep Ratio: Market Cap and Debt to Present Value Net ($/sh) Market Present Debt/ Symbol/ 10-Sep Shares Cap Value Present McDep Rating 2001 (mm) ($mm) ($/sh) Value Ratio Consol Energy Inc. CNX , Sempra Energy SRE , CMS Energy Corporation CMS , Constellation Energy Group CEG , Total or Median 14, Valero Energy Corp.(with UDS) VLO , Ocean Energy, Inc. OEI , PanCanadian Energy PCX_w , Unocal Corporation UCL , Marathon Oil Corporation MRO , Devon Energy (incl MND,AXN) DVN , Petro-Canada PCZ , Norsk Hydro ASA (49%) NHY , PetroChina Company Ltd (10%) PTR , Total or Median 57, Small Cap Quicksilver Resources Inc. KWK Spinnaker Exploration Company SKE , XTO Energy Inc. XTO , Southwestern Energy Company SWN Louis Dreyfus Natural Gas Corp. LD , Swift Energy Company SFY Newfield Exploration Company NFX , Stone Energy Company SGY , Encore Acquisition Corporation EAC Penn Virginia Corporation PVA Forest Oil Corporation FST , Total or Median 10, Trusts and Partnerships TEPPCO Partners, L.P. TPP , Dorchester Hugoton, Ltd. DHULZ Cross Timbers Royalty Trust CRT San Juan Basin Royalty Trust SJT Hugoton RoyaltyTrust HGT Total or Median 2, Micro Cap Abraxas Petroleum Corporation ABP Purcell Energy, Ltd. (US$) PEL.TO Energy Partners Ltd.(30%) EPL Buy/Sell rating after symbol: 1 - Strong Buy, 2 - Buy McDep Ratio = Market cap and Debt to present value of oil and gas and other businesses his spouse act contrary to a buy or sell rating. Mr. Wulff is not paid by covered companies. 5

6 Table S-2 Mid Cap and Small Cap Energy Companies Rank by EV/Ebitda: Enterprise Value to Earnings Before Interest, Tax, Deprec. Dividend or ($/sh) EV/ EV/ Distribution PV/ Symbol/ 10-Sep Sales Ebitda P/E NTM Ebitda Rating E NTM NTM (%) NTM Consol Energy Inc. CNX Sempra Energy SRE CMS Energy Corporation CMS Constellation Energy Group CEG Median Valero Energy Corp.(with UDS) VLO Unocal Corporation UCL Ocean Energy, Inc. OEI Devon Energy (incl MND,AXN) DVN Petro-Canada PCZ PanCanadian Energy PCX_w Marathon Oil Corporation MRO Norsk Hydro ASA (49%) NHY PetroChina Company Ltd (10%) PTR Median Small Cap Quicksilver Resources Inc. KWK Louis Dreyfus Natural Gas Corp. LD Spinnaker Exploration Company SKE XTO Energy Inc. XTO Southwestern Energy Company SWN Encore Acquisition Corporation EAC Swift Energy Company SFY Forest Oil Corporation FST Newfield Exploration Company NFX Stone Energy Company SGY Penn Virginia Corporation PVA Median Trusts and Partnerships TEPPCO Partners, L.P. TPP Dorchester Hugoton, Ltd. DHULZ Cross Timbers Royalty Trust CRT San Juan Basin Royalty Trust SJT Hugoton RoyaltyTrust HGT Median Micro Cap Abraxas Petroleum Corporation ABP Purcell Energy, Ltd. (US$) PEL.TO Energy Partners Ltd.(30%) EPL EV = Enterprise Value = Market Cap and Debt; Ebitda = Earnings before interest, tax, depreciation and amortization; NTM = Next Twelve Months Ended June 30, 2002; P/E = Stock to Earnings; PV = Present Value of oil and gas and other businesses his spouse act contrary to a buy or sell rating. Mr. Wulff is not paid by covered companies. 6